The largest investment many of us will make in our lifetime is purchasing a home. Pride of ownership, more control over your living situation, and curbing inflation are fantastic benefits. In addition, it’s a great tax deduction especially in the early life of the loan.
Buying an investment property is an option. Having a tenant pay your mortgage, tax depreciation deduction, along with price appreciation are tremendous benefits.
Buying a home has proven to be a safe bet over time. Since 1968, homes prices have appreciated a little over 6% annually. There have been more than several booms and recessions throughout this period including the roller coaster ride many of us felt with huge price increases from 2002-2007, and the subsequent and devastating recession that left many homeowners underwater and/or losing their homes when prices were cut in half or even more in many cities. Yet, the housing market has shown its resiliency making its way back and today, prices have exceeded the July 2007 pricing peak.
Purchasing a home with a mortgage has another advantage if you consider the power of leverage. If you were to place a 5% down payment with a $300,000 purchase price, and considering the historical appreciation average of 6% per year, the value at the end of one year would be $318,000. After a five year period, the value of your home would be a little over $401,000 and the $20,000 down payment leveraged itself into a little over a $100,000 gain. It’s easy to see why nearly all millionaires made their money in real estate. There are other programs allowing for 0-3% down payment making the return on investment even greater. Keep in mind price increases and decreases tend to happen in bunches making timing the market to purchase a home extremely difficult. Also, it goes without saying buying at the top or bottom of the market will affect your return. There are expenses as a homeowner with maintenance costs, insurance payments, and property taxes. If selling your home, the cost of selling is around 8% of the sales price. Still, over a period of time, real estate has proven itself to be one of the safer investments. So let’s get started!